Note 4 - Income Taxes

6 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

(4)     Income Taxes

The Company is subject to income tax in the U.S., Australia and the United Kingdom (U.K.). A reconciliation of the (benefit) provision for income taxes, with the amount computed by applying the statutory company tax rate of 35% to the income (loss) before income taxes for the three and six month periods ended December 31, 2012, are set out in the tables below (in thousands):

	Three Months Ended December 31,
	2012			2011
Income (loss) before income taxes	$	4,823		$	(7,519	)
Computed by applying standard income tax rate of 35%		1,688			(2,632	)
Differences in foreign tax rates to standard rate		(257	)		379
Non qualifying research and development expenditure		2,662			1,904
Non-assessable income:
Australian research and development credit		(1,561	)		-
UK research and development incentive		(949	)		-
Gain on merger		(3,015	)		-
Disallowed expenses (income):
Share-based compensation		512			11
Non-taxable amortization		144			(569	)
Other		(449	)		(23	)
State taxes, net of federal benefit		261			-
Change in valuation allowance		958			410
Income tax benefit	$	(6	)	$	(520	)

	Six Months Ended December 31,
	2012			2011
Loss before income taxes	$	(2,517	)	$	(11,902	)
Computed by applying standard income tax rate of 35%		(881	)		(4,166	)
Differences in foreign tax rates to standard rate		110			239
Non qualifying research & development expenditure		2,947			2,490
Non-assessable income:
Australian research and development credit		(1,561	)		-
UK research and development incentive		(523	)		-
Gain on merger		(3,015	)		-
Disallowed expenses (income):
Share-based compensation		568			134
Non-taxable amortization		2			(139	)
Other		(16	)		6
State taxes, net of federal benefits		261			-
Change in valuation allowance		2,004			786
Income tax benefit	$	(104	)	$	(650	)

Significant components of deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. A valuation allowance has been established, as the Company has determined that the realization of such assets is not more likely than not.

As of December 31, 2012, the Company’s foreign subsidiaries have no positive accumulated earnings. As such, no federal or state income taxes have been provided on the losses of its foreign subsidiaries under ASC 740. If in the future there are positive earnings generated from the Company’s foreign subsidiaries, the Company will evaluate whether to record any applicable federal and state income taxes on such earnings.

As of December 31, 2012 the Company has accumulated gross U.S. net operating losses of $180 million, which expire at various dates through 2032, U.S. research and experimental tax credit carry forwards of approximately $13 million ($11.3 million, net of unrecognized tax benefit) that expire in varying amounts through 2026, and U.S. alternative minimum tax credit carry forwards of $0.9 million. As of December 31, 2012, the Company also has accumulated Australian tax losses of A$59 million and accumulated UK tax losses of STG19 million available for carry forward against future earnings, which under relevant tax laws do not expire but may not be available under certain circumstances. A full valuation allowance has been established against the tax losses in the U.S. due to the volatility of earnings and the potential unavailability of the losses in some circumstances, including changes in ownership due to U.S. tax rules. The application of these rules may result in a complete elimination of the use of these tax attributes in the future, or subject such tax attributes to an annual limitation that may result in income tax loss and credit carry forwards expiring before the Company is able to fully utilize them. The Company is in the process of conducting a study to determine the impact of these tax rules. As a valuation allowance against all of the Company’s U.S. net deferred tax assets and Australian and UK tax losses has been established there is no current impact on these consolidated financial statements as a result of the application of these tax provisions.

The assets not subject to a valuation allowance relate to temporary differences arising on Australian balance sheet amounts that are expected to reverse where sufficient Australian taxable income will be available to utilize them.

Uncertain Tax Positions

The Company is subject to income taxes in the U.S., various states, and several foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. The Company has established reserves for tax-related uncertainties based on estimates of whether, and to the extent to which, additional taxes may be due. These reserves are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

The Company is subject to tax audits in all jurisdictions for which it files tax returns. Tax audits by their very nature are often complex and can require several years to complete. Under the tax statute of limitations application to the Internal Revenue Code (“IRC”), the Company is no longer subject to U.S. federal income tax examinations by the Internal Revenue Services (“IRS”) for years before 2008. However, because the Company is carrying forward income tax attributes, such as net operating losses and tax credits from 2002 and earlier tax years, these attributes can still be audited in the future when used on an income tax return filed. Tax attributes carried forward from 2002 and earlier tax years recently utilized in tax years for which the statute of limitations have not yet expired are also subject to audit. Under the statute of limitations applicable to most state income tax laws, the Company is no longer subject to state income tax examinations by tax authorities for years before 2008 in states in which we have filed income tax returns. Certain states may take the position that the Company is subject to income tax in such states even though the Company has not filed income tax returns in such states and, depending on the varying state income tax statutes and administrative practices, the statute of limitations in such states may extend to years before 2008. The Company began foreign operations in 1985. The Company is subject to foreign tax examinations by tax authorities for all years of operations.

The Company has an unrecognized U.S. tax benefit of $2.5 million as of December 31, 2012. Any potential interest and penalties on unrecognized tax benefits were not significant. Unrecognized tax benefits are shown as a reduction in net deferred tax assets in the accompanying consolidated balance sheets.